The U.S. continues to lose jobs. Since President Bush
has been in
office, 2.5 million manufacturing jobs and nearly
600,000 service jobs have been lost for a total decline
in private sector employment of 3.1 million. The
unemployment rate has risen to 6.1 percent. If this is
recovery, what is going on?

Pundits call it
"the jobless recovery." The economy is growing, but
jobs are not. Why? One economist recently blamed the
absence of job growth on high U.S. productivity. Those
who are working are so productive, he said, that their
output meets demand, making additional jobs superfluous.
His solution, apparently, is to make people less
productive.

I think that the jobless recovery is an illusion and
that the U.S. economy is creating jobs - but not for
Americans. Those 2.5 million manufacturing jobs have not
been lost. They have been moved offshore and given to
foreigners who work for less.

The service economy was supposed to take the place of
the lost manufacturing economy. Alas, those jobs, too,
are being created for foreigners. It turns out that it
is even easier to move service jobs abroad. For example,
170,000 computer system design jobs -13 percent of the
total - have recently been shifted abroad. Keeping
knowledge-based jobs in the U.S. is proving as difficult
as keeping manufacturing jobs.

Outsourcing,
offshore production,
work visas and the Internet make it easy for U.S.
companies to substitute cheaper foreign employees for
U.S. employees. Entrepreneurs in India have created
firms that specialize in supplying skilled labor to U.S.
corporations. The growth in the U.S. economy thus brings
about a growth in foreign employment, not in U.S.
employment.

If this analysis is correct, U.S. job seekers will no
longer be able to tell the difference between recovery
and recession. In the old economy, people lost jobs when
the
Federal Reserve caused a recession by curtailing the
growth of money and credit. In the new economy, they
lose their jobs because foreigners work for less.

This development has produced a disconnect between
economic policy and employment. The Fed`s low interest
rates and President Bush`s
tax cuts cannot bridge the difference between wages
and salaries in the U.S. versus those in
China and India.

When U.S. companies move their production for U.S.
markets offshore, U.S. incomes and GDP decline and
foreign income rises. When the offshore production is
shipped to the U.S. to meet consumer demand, it becomes
imports.

A country that produces offshore for its home market
is going to have a big import bill, as those goods come
on top of goods that foreign companies export. In 2002
the U.S. had a trade deficit in goods of $484 billion
and a current account deficit of $503 billion.

With production and employment moving out of the
U.S., the ability of the U.S. to pay for its imports
with exports declines. In the end there is nothing to
bring about a balance between U.S. imports and exports
except a collapse in the value of the dollar. When that
happens, cheap goods from abroad become expensive, and
the living standard of an import-dependent population
drops.

During the short period of time that President Bush
has been in office (Jan. 19, 2001-June 5, 2003), the
dollar has lost 27 percent of its value in relation
to the new European currency, the Euro. Considering that
European economies are not doing well and that the Euro
is an untested currency, the dollar`s decline is not a
good sign.

When we import $500 billion more than we export,
foreigners must finance our deficit. They do this by
using the dollars we pay them to purchase our assets, or
they lend the money back to us by purchasing government
or corporate bonds.

Either way, Americans lose to foreigners the future
income streams from stocks, real estate, and bonds, and
this worsens our current account deficit in subsequent
years.

In the past two years, foreigners` willingness to
finance our current account deficit with their direct
investment in the U.S. has declined from $335.6 billion
in 2000 to $52.6 billion in 2002, a decline of 84
percent. This dramatic drop in the willingness of
foreigners to hold U.S. dollar assets is the likely
explanation for the drop in the dollar`s value.

If U.S. companies cannot profitably employ costly
U.S. labor to produce for U.S. consumers, it is unlikely
that U.S. companies will be able to export a lot of
goods made with U.S. labor. As our manufacturing sector
moves abroad, our ability to trade declines as we
produce fewer products to offer in exchange for our
imports.

The dollar is the world`s
reserve currency, which gives us the ability to
finance trade deficits that no other country could
afford. When an alternative reserve currency appears,
the U.S. will undergo wrenching economic, social and
political adjustments.

Meanwhile, a rising stock market is consistent with
"jobless recovery" as the lower labor costs of foreign
employees drive profits.

The growing gap between average incomes and executive
compensation will politically handicap the Republican
Party and weaken its resistance to a leftward turn in
American politics.